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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


August 2019
Vol. XX, No. 8
[pdf version]

CONTENTS


SBA Adjusts Monetary-Based Small Business Size Standards, Proposes Change in Calculation
Army Acquisition Regulations Repealed as “Obsolete”
Thirty More Biobased Products Designated
GSA Issues Unique ID Standard for SAM.gov
Electronic Submission of DD Form 254 Proposed
EO Promotes American-Made Goods, Products, Materials



SBA Adjusts Monetary-Based Small Business Size
Standards, Proposes Change in Calculation

The U.S. Small Business Administration (SBA) is adjusting the monetary-based industry size standards (that is, those that are receipts- and assets-based) for inflation that has occurred since the last inflation adjustment in 2014 (see the July 2014 Federal Contracts Perspective article “SBA Addresses Small Business Size Standards”). These include receipts-based size standards for 518 industries and nine subindustries (which are “exceptions” to the primary industry size standard) as well as assets-based size standards for five industries in North American Industry Classification System (NAICS) Sector 52, Finance and Insurance. In addition, SBA is proposing to modify its method for calculating the annual average receipts used to prescribe the small business size standards.

The SBA’s regulations in Title 13 of the Code of Federal Regulations (CFR), Part 121, Small Business Size Standards, paragraph (c) of Section 121.102, How Does SBA Establish Size Standards? (13 CFR 121.102(c)), states that “SBA’s Office of Size Standards will examine the impact of inflation on monetary-based size standards (e.g., receipts, net income, assets) at least once every five years and submit a report to the [SBA] administrator or designee. If SBA finds that inflation has significantly eroded the value of the monetary-based size standards, it will issue a proposed rule to increase size standards.” This implements the Small Business Jobs Act of 2010 (Public Law 111-240), paragraph (a)(2) of Section 1344, Updated Size Standards, which mandates that “The [SBA] administrator shall ensure that each size standard for small business concerns...is reviewed…not less frequently than once every 5 years.”

The SBA’s introduction to the interim rule states, “A number of businesses may have lost small business eligibility for federal assistance [such as loans or eligibility to participate in small business set aside programs] under SBA’s monetary-based industry size standards simply because of inflation-led revenue growth that has occurred since the 2014 adjustment. This rule aims to reinstate those firms’ small business eligibility for federal assistance.” SBA estimates that nearly 90,000 additional businesses will gain small business status under the adjusted size standards and become eligible for SBA loan and contracting programs. “This could lead to as much as $750 million in additional federal contracts awarded to small businesses and up to 120 additional small business loans totaling nearly $65 million.”

The size standards that are being adjusted are in the table in 13 CFR 121.201, What size standards has SBA identified by North American Industry Classification System codes? The size standards are being adjusted by multiplying their current levels by 1.0837 (the 8.37% inflation experienced since the first quarter of 2014 according to the chain-type price index for the U.S. Gross Domestic Product [GDP price index]) and rounding the results to the nearest $500,000. For example, the size standard for chicken egg production (NAICS code 112310) had a monetary-based industry size standard of $15.0 million. Multiplying $15.0 million by 1.0837 produces a $16.3 million result, and rounding $16.3 million to the closest $500,000 produces a new industry size standard of $16.5 million.

There are several exceptions to this methodology:

The following are the revised monetary-based size standards:

Current Monetary-Based Size Standards
($ million)
Size Standards Adjusted for Inflation,
but Not Rounded for Inflation
($ million)
Size Standards Adjusted for Inflation,
Rounded to Nearest $500,000
($ million)
Number of Industries
(including exceptions)
$0.75 $1.05 $1.0 46
$5.5 $6.0 $6.0 4
$7.5 $8.1 $8.0 126
$11.0 $11.9 $12.0 39
$15.0 $16.3 $16.5 95
$18.0 $19.5 $19.5 1
$19.0 $20.6 $20.5 2
$20.5 $22.2 $22.0 39
$25.0 $27.1 $27.0 1
$27.5$29.8 $30.0 55
$29.5 $32.0 $32.0 3
$32.0 $34.7 $34.5 2
$32.5 $35.2 $35.0 39
$36.5 $39.6 $39.5 11
$37.5 $40.6$40.5 1
$38.5 $41.7 $41.5 63
$550.0 $596.0 $600.0 5

These changes go into effect on August 19, 2019.

Comments on this interim rule must be submitted no later than September 16, 2019, identified as “RIN 3245-AH17,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail/hand delivery/courier: U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.

In addition, SBA has published a proposed rule that would modify its method for calculating annual average receipts used to prescribe receipts- and assets-based small business size standards.

Section 3(a)(2)(C)(ii)(II) of the Small Business Act (which is codified in Title 15 of the U.S. Code, Section 632, Definitions, subparagraph (a)(2)(C)(ii)(II) [15 USC 632(a)(2)(C)(ii)(II)], provided that “unless specifically authorized by statute, no federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard...(ii) provides for determining...(II) the size of a business concern providing services on the basis of the annual average gross receipts of the business concern over a period of not less than 3 years...”

The Small Business Runway Extension Act of 2018 (Public Law 115-324) modified the method for prescribing size standards for business concerns by striking “3 years” in 15 USC 632(a)(2)(C)(ii)(II) and inserting “5 years”. In the introduction to the proposed rule, SBA states, “during the period when annual revenues are rising, the 5-year average will generally be lower than the 3-year average, thereby allowing: (i) mid-sized businesses who have just exceeded size standards to regain their small business status, and (ii) advanced small businesses close to exceeding the size standard to retain their small business status for a longer period. It is notable that, when annual revenues are declining, the 5-year average may be higher than the 3-year average. This would cause small businesses near the size thresholds to lose their small business status sooner under the 5-year average than under the 3-year average. This is more likely to happen during economic downturns.”

To implement this change, SBA proposes substituting “5” for “3” in 13 CFR 121.104, How does SBA calculate annual receipts?, paragraph (c), which addresses the “period of measurement.” The following is the current text of 13 CFR 121.104(c) with the proposed substitute language in italics:

"(1) Annual receipts of a concern that has been in business for three [five] or more completed fiscal years means the total receipts of the concern over its most recently completed three [five] fiscal years divided by three [five].

"(2) Annual receipts of a concern which has been in business for less than three [five] complete fiscal years means the total receipts for the period the concern has been in business divided by the number of weeks in business, multiplied by 52.

"(3) Where a concern has been in business three [five] or more complete fiscal years but has a short year as one of the years within its period of measurement, annual receipts means the total receipts for the short year and the two [four] full fiscal years divided by the total number of weeks in the short year and the two [four] full fiscal years, multiplied by 52."

Comments on this proposed rule must be submitted no later than August 23, 2019, identified as “RIN 3245-AH16,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail/hand delivery/courier: U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.



Army Acquisition Regulations Repealed as “Obsolete”

The Department of the Army has removed from Title 48 of the Code of Federal Regulations (CFR) the four parts that constitute Chapter 51, Department of the Army Acquisition Regulations (48 CFR Chapter 51), leaving it devoid of regulations, or policies, or guidance, or anything. This is because these parts were adopted in 1989 but never updated, so they are considered obsolete. (EDITOR’S NOTE: 48 CFR Chapter 51 consists of regulations that have gone through the regulatory approval process and, as such, are mandatory. This is not the same as the Army Federal Acquisition Regulation Supplement [AFARS], which “implements and supplements the Federal Acquisition Regulation [FAR], the Defense FAR Supplement [DFARS], and the DFARS Procedures, Guidance, and Information [PGI] to establish uniform policies for Army acquisition” [emphasis added] [AFARS 5101.101, Purpose].).



Thirty More Biobased Products Designated

The United States Department of Agriculture (USDA) is adding 30 sections to Title 7 of the Code of Federal Regulations (CFR), Part 3201, Guidelines for Designating Biobased Products for Federal Procurement (7 CFR Part 3201), to add 30 more biobased products to be given preference in federal procurements as provided under Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA) (Public Law 107-171), and to specify the minimum level of biobased content to be contained in the procured products. These 30 product categories contain finished products that are made, in large part, from intermediate ingredients that have been designated for federal procurement preference. Additionally, USDA is amending the existing designated product categories of general purpose de-icers, firearm lubricants, laundry products, and water clarifying agents.

The following are the new designated items and their 7 CFR Part 3201 section numbers:

3201.120, Adhesives
3201.121, Animal Habitat Care Products
3201.122, Cleaning Tools
3201.123, Concrete Curing Agents
3201.124, Concrete Repair Materials
3201.125, Durable Cutlery
3201.126, Durable Tableware
3201.127, Epoxy Systems
3201.128, Exterior Paints And Coatings
3201.129, Facial Care Products
3201.130, Feminine Care Products
3201.131, Fire Logs and Fire Starters
3201.132, Folders and Filing Products
3201.133, Foliar Sprays
3201.134, Gardening Supplies and Accessories
3201.135, Heating Fuels and Wick Lamps
3201.136, Kitchenware and Accessories
3201.137, Other Lubricants
3201.138, Phase Change Materials
3201.139, Playground and Athletic Surface Materials
3201.140, Powder Coatings
3201.141, Product Packaging
3201.142, Rugs and Floor Mats
3201.143, Shopping and Trash Bags
3201.144, Soil Amendments
3201.145, Surface Guards, Molding, And Trim
3201.146, Toys and Sporting Gear
3201.147, Traffic and Zone Marking Paints
3201.148, Transmission Fluids
3201.149, Wall Coverings

In addition, USDA is amending the existing designated product categories of general purpose de-icers (3201.37, De-Icers); firearm lubricants (3201.38, Firearm Cleaners, Lubricants, and Protectants); laundry products (3201.40, Laundry Products); and water clarifying agents (water and wastewater treatment chemicals, 2008 for the others), USDA has obtained additional information on products within these four categories. Therefore, USDA is now amending these four categories to more closely align the existing categories with the data gathered since the categories were originally designated.

Five respondents submitted comments on the proposed rule (see the October 2018 Federal Contracts Perspective article “USDA Proposes 30 New Biobased Products”). As a result of those comments, the following changes are made to the final rule:

EDITOR’S NOTE: As a general rule, procuring agencies must purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless products within a designated item: (1) are not reasonably available within a reasonable period of time; (2) fail to meet the reasonable performance standards of the procuring agencies; or (3) are available only at an unreasonable price. The $10,000 threshold applies to federal agencies as a whole and not to agency subgroups such as regional offices or subagencies of the larger federal department or agency.

For more information on the biobased program and all the products in the program, go to http://www.biopreferred.gov/.

GSA Issues Unique ID Standard for SAM.gov

The General Services Administration (GSA) has issued the technical specifications for the Unique Entity Identification (ID) that will be used as the official identifier for doing business with the government. This non-proprietary ID will replace the Data Universal Numbering System (DUNS®) numbers currently used to identify entities and will be be generated in the System for Award Management (SAM – https://www.sam.gov).

SAM is the federal database where vendors register to do business with the government. It has consolidated several federal databases into one: the Federal Agency Registration (FedReg); the Online Representations and Certifications Application (ORCA); the Excluded Parties List System (EPLS); and the Wage Determinations On-Line (WDOL), and there are plans to consolidate even more federal databases into SAM. The purpose of SAM is to: (1) allow users to employ a single login to access all the capabilities found in the old systems; (2) eliminate data overlap by sharing the data among the systems; and (3) provide a standardized format across all webpages to make it easier to navigate and find information.

The government must validate the identity of each entity (company, individual, organization, etc.) that registers in SAM to do business with the government. For decades these services were provided by Dun and Bradstreet (D&B) though its DUNS® numbers. The government required its contractors to obtain and report a unique DUNS® number as a condition for receiving a contract award. This proprietary number permitted the government to: (1) uniquely identify a contractor entity; and (2) roll-up government procurements to the ultimate parent organization to show the corporate family receiving U.S. obligations. However, the Digital Accountability and Transparency Act of 2014 (DATA Act) (Public Law 113-101) specifically states that the data shall, to the extent reasonable and practicable, “incorporate a widely accepted, nonproprietary, searchable, platform-independent computer-readable format” and “include unique identifiers for federal awards and entities receiving federal awards that can be consistently applied governmentwide” (emphasis added). After soliciting for nonproprietary unique Entity IDs, GSA selected Ernst and Young to provide entity validation services for the federal award process (see the April 2019 Federal Contracts Perspective article “GSA Announces Award for Entity Validation Services”). The transition from DUNS® numbers to the SAM-generated Unique Entity ID will take place through December 2020.

The following is the explanation and specifications GSA has provided for the SAM-generated Unique Entity ID:

The Unique Entity ID is a new data element assigned by SAM.gov. It is stored as a twelve (12)-character, alpha-numeric value within databases and passed as such within interfaces and extracts. This 12-character value will adhere to the following rules:

Also see the October 2018 Federal Contracts Perspective article “FAC 2005-101 Updates Instructions for System for Award Management Registration” for changes made to the FAR to accommodate the transition from DUNS® numbers to nonproprietary unique Entity IDs.



Electronic Submission of DD Form 254 Proposed

An amendment to the FAR has been proposed that would require electronic submission of the Department of Defense (DD) Form 254, Contract Security Classification Specification.

The government uses the DD Form 254 to convey security requirements to contractors when contract performance requires access to classified information, and prime contractors use the DD Form 254 to convey security requirements to subcontractors that require access to classified information to perform on a subcontract. In addition, subcontractors may use the DD Form 254 if access to classified information is required to convey security requirements to additional subcontractors.

The National Industrial Security Program (NISP) was established as a single, integrated program designed to safeguard classified information released to contractors. DOD is responsible for providing industrial security oversight services to DOD and those nondefense agencies that have industrial security services agreements with DOD. The NISP Contracts Classification System (https://www.dss.mil/is/nccs/) is one of 14 modules within the Procurement Integrated Enterprise Environment (PIEE – https://www.dla.mil/HQ/InformationOperations/Procurement-Integrated-Enterprise-Environment/) (formerly the Wide Area WorkFlow application). The module provides a centralized repository for classified contract security requirements and automates DD Form 254 processes and workflows.

This rule proposes to amend the FAR as follows to provide procedures for use of the DD Form 254 and the requirement to use the PIEE:

Comments on this proposed rule must be submitted no later than September 10, 2019, identified as “FAR Case 2015-002,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat Division (MVCB), ATTN: Lois Mandell, 1800 F Street NW, Second Floor, Washington, DC 20405.



EO Promotes American-Made Goods, Products, Materials

On July 15, President Trump issued Executive Order (EO) 13881, Maximizing Use of American-Made Goods, Products, and Materials, to “to maximize, consistent with law, the use of goods, products, and materials produced in the United States.”

The fundamental law governing federal purchases of foreign products is the Buy American Act of 1933 (41 USC 8301-8305). Enacted during the Great Depression, the Buy American Act discourages the federal government from buying foreign products for three reasons: to make American industry stronger, to protect domestic labor markets, and to keep federal funds in the U.S. While the Buy American Act does not prohibit the acquisition of foreign products, it handicaps them by requiring the application of factors to the prices of the foreign products, thus making them less competitive. The Buy American Act is covered in FAR subpart 25.1, Buy American Act – Supplies, and FAR subpart 25.2, Buy American Act – Construction Materials.

In 1954, President Eisenhower issued EO 10582, Prescribing Uniform Procedures for Certain Determinations Under the Buy American Act, which established that materials shall be, for purposes of the Buy American Act, considered of foreign origin if the cost of the foreign products used in such materials constitutes 50% or more of the cost of all the products used in such materials. Also, EO 10582 established that, in determining whether the bid or offered price of materials of domestic origin is unreasonable or inconsistent with the public interest, the executive agencies shall add 6% to the total bid or offered price of materials of foreign origin. (EDITOR'S NOTE: Subsequently, this was amended to provide that 12% would be added to the total bid or offered price of materials of foreign origin if the lowest domestic offer is from a small business – see paragraph (b) of FAR 25.105, Determining Reasonableness of Cost.)

EO 13881 directs that the FAR Council “consider” proposing a FAR amendment that would provide that materials are considered to be of foreign origin if:

The president orders that this FAR amendment “consideration” be conducted within 180 days of the date of the order – that is, by January 13, 2020.





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